IPOs plummet as money dries up

The downturn in the stock market has led to a significant downturn in the initial public offerings (IPO) market in the United States.

High inflation and rising interest rates have scared investors who dumped growth stocks in preference of safer alternatives.

Former Wall Street favourites like Facebook owner Meta and Netflix have experienced share price declines of around 70% this year.

There are fears that tech companies will face more pain after chipmaker AMD warned of lower-than-expected sales.

AMD blamed the poor results on weakness in the personal computer market, sending its shares and those of other companies involved in the sector lower.

The impact of the lagging stock market, especially related to tech and other growth stocks, is felt in the IPO market.

Charlie Bilello, founder and CEO of Compound Capital Advisors, said that thus far in 2022, we’ve seen just $19 billion in issuance.

It is significantly lower than last year’s mania when there was a record $316 billion in U.S. IPO issuance – the biggest ever.

2022, in comparison, is set to be the slowest IPO year since 2016.

The chart below, courtesy of Charlie Bilello, shows the US IPO issuance over the last 25 years.

It is not only the United States IPO market which is suffering. The global IPO market continued to plummet in the third quarter.

According to research by EY, there have been 992 IPOs raising US$146 billion by the end of the third quarter of 2022.

It represents a 44% decline in the number of IPOs and a 57% decline in money raised year-on-year.

It follows the trend for the year in which IPO companies and investors faced macroeconomic challenges like market uncertainties, increasing volatility, and falling global equity prices.

Special purpose acquisition companies (SPACs) were particularly hard hit. Q3 2022 saw the lowest SPAC IPO proceeds since Q3 2016.

The technology sector continued to lead the number of IPOs, although the average deal size declined from US$261 million to US$123 million year-on-year.

“With uncertainties being the IPO market’s biggest challenge, companies and investors wait for a more stable and positive stock market sentiment before any sustained appetite for IPO activity re-emerges,” said Paul Go, EY Global IPO leader.